UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 7482 / December 4, 1997
SECURITIES EXCHANGE ACT OF 1934
Release No. 39398 / December 4, 1997
ADMINISTRATIVE PROCEEDING
File No. 3-9498
________________________________
: ORDER INSTITUTING PUBLIC
In the Matter of : ADMINISTRATIVE AND CEASE-AND-
: DESIST PROCEEDING PURSUANT TO
ARMSCOTT SECURITIES, LTD. : SECTION 8A OF THE SECURITIES
: ACT OF 1933 AND SECTIONS 15(b),
Respondent. : 15B, 19(h), AND 21C OF THE
: SECURITIES EXCHANGE ACT OF
: 1934, MAKING FINDINGS, AND
________________________________: IMPOSING REMEDIAL SANCTIONS
______
I.
The Securities and Exchange Commission ("Commission") deems it
appropriate and in the public interest that a public administrative and
cease-and-desist proceeding pursuant to Section 8A of the Securities Act of
1933 ("Securities Act") and Sections 15(b), 15B, 19(h), and 21C of the
Securities Exchange Act of 1934 ("Exchange Act"), be instituted against
Armscott Securities, Ltd. ("Armscott").
II.
In anticipation of the institution of this proceeding, Armscott has
submitted an Offer of Settlement, which the Commission has determined to
accept. Solely for the purpose of this proceeding and any other
proceedings brought by or on behalf of the Commission or to which the
Commission is a party, and without admitting or denying the findings
contained herein, except that Armscott admits the jurisdiction of the
Commission over it and the subject matter of this proceeding, Armscott by
its Offer of Settlement consents to the findings and the imposition of the
sanctions contained in this Order Instituting Public Administrative and
Cease-and-Desist Proceeding Pursuant to Section 8A of the Securities Act of
1933 and Sections 15(b), 15B, 19(h), and 21C of the Securities Exchange Act
of 1934, Making Findings, and Imposing Remedial Sanctions ("Order").
Accordingly, IT IS ORDERED that a proceeding against Armscott be, and
hereby is, instituted.
III.
On the basis of this Order, and the Offer of Settlement submitted by
Armscott, the Commission finds that:
A. Armscott has been registered with the Commission as a broker-
dealer from July 28, 1989, to the present (File No. 8-41439). Armscott is
located in Los Angeles, California.
B. From January 1995 through March 1997, Armscott sold certain
government securities, specifically mortgage-backed securities issued or
guaranteed by the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, and the Government National Mortgage
Association, to customers.
C. From January 1995 through March 1997, in connection with the sale
of these government securities, Armscott, in 14 trades, charged customers
undisclosed, excessive markups. The total markups that Armscott charged
customers in connection with these government securities transactions
ranged between 1.42% and 3.50% (totalling $37,610), and generated excess
profits totalling at least $24,515.
D. From March 1995 through March 1996, Armscott sold Los Angeles,
California Regional Airport Improvement Corporation Lease Revenue
Facilities bonds to customers. In connection with the purchase and sale of
these municipal securities, Armscott, in 5 trades which were executed near
the securities' call dates, charged customers undisclosed, excessive
markups which ranged between 1.87% and 3.50%.
E. In September 1995, Armscott bought Los Angeles, California
Regional Airport Improvement Corporation Lease Revenue Facilities bonds
from a customer. In connection with the purchase of these municipal
securities, Armscott charged its customer an undisclosed, excessive
markdown of 3.29% (or $1,575), and generated excess profits totalling $137.
F. Armscott failed to disclose to customers that it charged
excessive markups and markdowns in connection with the transactions
described in Paragraphs III.B. through E. above.
G. Armscott willfully violated Section 17(a) of the Securities Act
by, directly and indirectly, using the means and instruments of
transportation or communication in interstate commerce and by use of the
mails in the offer or sale of securities: (1) to employ devices, schemes,
and artifices to defraud; (2) to obtain money and property by means of
untrue statements of material fact and omissions to state material facts
necessary in order to make the statements made, in the light of the
The findings herein are made pursuant to Armscott's
Offer of Settlement and are not binding on any other
person or entity named as a respondent in this or any
other proceeding.
======END OF PAGE 2======
circumstances under which they were made, not misleading; and (3) to engage
in transactions, practices, and a course of business which operated as a
fraud or deceit upon purchasers of securities, as is more particularly
described in Paragraphs III.B. through F. above.
H. Armscott willfully violated Section 10(b) of the Exchange Act and
Rule 10b-5 thereunder by, directly and indirectly, using the means and
instrumentalities of interstate commerce and of the mails in connection
with the purchase or sale of securities: (1) to employ devices, schemes,
and artifices to defraud; (2) to make untrue statements of material facts
and to omit to state material facts necessary in order to make the
statements made, in the light of the circumstances under which they were
made, not misleading; and (3) to engage in acts, practices, and a course of
business which operated as a fraud or deceit upon customers, as is more
particularly described in Paragraphs III.B. through F. above.
I. Armscott willfully violated Section 15(c)(1) of the Exchange Act
and Rule 15c1-2 thereunder by making use of the mails and the means and
instrumentalities of interstate commerce to effect transactions in, and to
induce and to attempt to induce the purchase and sale of securities
otherwise than on a national securities exchange of which Armscott was a
member, by: (1) engaging in acts, practices, and a course of business
which operated as a fraud or deceit upon Armscott's customers; and
(2) making untrue statements of material fact and omitting to state
material facts necessary in order to make the statements made, in the light
of the circumstances under which they were made, not misleading, which
statements or omissions were made with knowledge or reasonable grounds to
believe that the statements or omissions were untrue or misleading, as is
more particularly described in Paragraphs III.B. through F. above.
J. Armscott willfully violated Section 15B(c)(1) of the Exchange Act
and Rule G-17 of the Municipal Securities Rulemaking Board ("MSRB") by
making use of the mails and the means and instrumentalities of interstate
commerce to effect transactions in, and to induce and to attempt to induce
the purchase and sale of, municipal securities in contravention of Rule G-
17 of the MSRB, as is more particularly described in Paragraphs III.D.
through F. above.
K. Armscott willfully violated Section 15B(c)(1) of the Exchange Act
and Rule G-30 of the MSRB by making use of the mails and the means and
instrumentalities of interstate commerce to effect transactions in, and to
induce and to attempt to induce the purchase and sale of, municipal
securities in contravention of Rule G-30 of the MSRB, as is more
particularly described in Paragraphs III.D. through F. above.
L. Armscott has submitted a financial statement and other evidence
and has asserted its financial inability to pay a civil money penalty. The
Commission has reviewed the financial statement and other evidence provided
by Armscott and has determined that Armscott does not have the financial
ability to pay a civil money penalty.
======END OF PAGE 3======
IV.
On the basis of the foregoing, the Commission deems it appropriate to
impose the sanctions specified in Armscott's Offer of Settlement.
Accordingly, IT IS HEREBY ORDERED that:
A. Pursuant to Section 8A of the Securities Act and Section 21C of
the Exchange Act, Armscott shall cease and desist from committing or
causing any violation and any future violation of Section 17(a) of the
Securities Act, Sections 10(b), 15(c)(1), and 15B(c)(1) of the Exchange Act
and Rules 10b-5 and 15c1-2 thereunder, and MSRB Rules G-17 and G-30;
B. Armscott shall comply with its undertaking to file Form BDW to
withdraw its registration as a broker-dealer within twenty-one (21) days
from the entry of this Order; and
C. Armscott shall, within twenty-one (21) days after entry of this
order, pay disgorgement with prejudgment interest in the total amount of
$7,016.41 to the United States Treasury. Such payment shall be: (1) made
by United States postal money order, certified check, bank cashier's check,
or bank money order; (2) made payable to the Securities and Exchange
Commission; (3) hand-delivered or mailed to the Comptroller, Securities and
Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3,
Alexandria, VA 22312; and (4) submitted under cover letter that identifies
Armscott as a respondent in these proceedings, the file number of these
proceedings, a copy of which cover letter and money order or check shall be
sent to Elaine M. Cacheris, Regional Director, Securities and Exchange
Commission, 5670 Wilshire Blvd., 11th Floor, Los Angeles, CA 90036.
By the Commission.
Jonathan G. Katz
Secretary